PC Jeweller Ltd IPO Review

Issue Highlights

Price Band	Rs. 125-135
Issue Period	10/12/2012-12/12/2012
Issue Size	Rs. 609 crore/4,51,33,500 shares
Face value	Rs. 10
Lot Size	90 shares
Issue Type	100% Book Building
Listing	BSE,NSE
Registrar	Karvy Comutershare
Maximum Retail Subscription	Rs. 1,94,400/ 16 lots
Industry	Gems & Jewellery
Discount to Retail Investors	Rs. 5

Company Profile

PC Jewellers is a leading jewellery company in India and is involved in manufacturing, retailing and export of the gold jewellery. The company is a dominant retail player in the Delhi & NCR region with around 1,64,572 square feet of retail area and is trying to expand its footprints in the southern and western India. Around 33 % of the revenue comes from the exports. ‘PC Jewellers’ has got its manufacturing facilities situated in Deharadun & Noida. Deharadun units cater the domestic needs while Noida units take care of the exports.

Objects of the issue

· Towards the establishment of new showrooms : Rs. 517 crore

· General corporate purposes : NA

Strengths

· PC jewelers has already set up 30 showrooms located across 23 cities in India and the company intends to open 20 more by fiscal 2014

· PC jewelers is also involved in the online sales of the jewellery

· The company exports gold & diamond jewellery on a wholesale basis to international distributors in Dubai and Hong Kong

· The company is known for customer-oriented marketing initiatives like ‘Jewels for less’ scheme

· Pc Jewellers export gold and diamond jewellery to Honk Kong and Dubai on a wholesale basis – Hong Kong and UAE being the largest market for the Indian jewellery industry-augurs well for the company’s future prospects

Concerns

· MD cum promoter is availing a hefty pay package – a remuneration of Rs. 6 crore per year against the company’s net profit of Rs. 230 crore for the FY 2012 figures out to be 2.6 per cent- which is against the spirit of professional management

· PC Jewelers requires higher working capital and any sharp rise in gold prices could cause a reduction in sales

· PC Jewellers’ operations are highly concentrated in Delhi and NCR region and around 60 % of the total revenue comes from this region.

· PC Jewellers is a high-leveraged company (relatively) and it has seen a negative cash flow from operations for the FY 12

· Though interest cover is satisfactory but higher interest rate regime will be negative for the company

Financial analysis #

# EPS calculation has been done using post issue equity

# All calculations at the upper price band of Rs. 135

Parameters	FY 13 Annualized	FY 12
EPS	Rs. 15.9	Rs. 12.8
P/E	8.5	10.5
P/B	3.5	4.4
NPM	8%	8%
ROE	40.7 %	41.4%
Net Asset per Share	Rs. 39	Rs. 31
Debt/Equity Ratio	2.5	2.7
Current Ratio	1.3	1.3
Interest Coverage	3	3.4
Inventory Turnover Ratio	2.7	2.6
M-Cap/Sales	.7	.8
Profit CAGR (4 years)	96%	110%

Comparison to peers #

# Peer data is for FY 12 as per moneycontrol & iforp.in –duly updated as on 7/12/12

	PC Jewellers	TBZ	Gitanjali Gems	Titan	Tara Jewellers
P/E	10.5	29.96	18.57	42.32	9.88
ROE	41.4 %	35.78 %	15.62 %	41.87 %	19.5 %
Debt/Equity	2.7	1.27	1.28	.007 *	3.2
NPM	8%	4.13 %	3.85 %	6.71%	4 %

* FY 2011 figure

Inference

PC Jewellers is offering its shares at very attractive levels- especially in the peer comparison perspective -thanks to PC Jewelers’ stupendous profit growth. As mentioned above, PC Jewelers boasts better profit margin & ROE in its peer group. PCJ is a high-leveraged play with higher debt-to-equity ratio in the pack. Short term borrowing shot up 4.2 times coupled with a negative cash flow from operations in the FY 12 and it is a big concern. This stock is not a fundamentally-sound one and does not fall in the value buying category. But the past observations have taught us that market often overlooks the structural concerns and reacts more on the growth prospects. So, to cut a long story short, investors who are comfortable with the underlying risks may play on this growth story.

Disclaimer

Analysis is for the information purpose only. Though due diligence has been taken while preparing this report, analyst shall not be responsible for any error and shall not bear any financial liability to the users of the report.

You may also like- Bharti Infratel IPO Review , PC Jewellers Ltd. IPO Review

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